Handout 1 - Law on Obligation RFBT Review PDF

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Regulatory Framework for Business Transactions Law on Obligation Definition of Obligation: Article 1156 of the Civil Code defines an obligation as a juridical necessity to give, to do or not to do. 2. Essential Elements or Requisites of an Obligationa. An active subject , who has the power to demand...

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Regulatory Framework for Business Transactions Law on Obligation

1. Definition of Obligation: Article 1156 of the Civil Code defines an obligation as a juridical necessity to give, to do or not to do. 2. Essential Elements or Requisites of an Obligation a. An active subject, who has the power to demand prestation, also known as the obligee or creditor. b. A passive subject, who is bound to perform the prestation, also known as the obligor or debtor. c. Object or prestation, which is the promise or particular conduct to be performed in the fulfillment or rendition of the obligation and it may consist of giving, doing or not doing a thing. i. Requisites of an Object or Prestation of an Obligation: 1. It must be possible, physically and juridically. 2. It must be determinate, or, at least, determinable according to pre-established elements or criteria. 3. It must have possible equivalent in money. d. Efficient cause, the tie which binds the parties to the obligation, also known as juridical tie or vinculum. i. Examples of juridical tie or vinculum 1. Relation established by law 2. Relation established by contract 3. Relation established by quasi-contract 4. Relation established quasi-delict or culpa aquiliania or tort 5. Relation established by crime or delict 3. Types of Civil Obligation based on the definition under the Civil Code a. Positive obligation refers to an obligation which consists of giving or doing something. i. Real obligation refers to an obligation which consists to the delivery or giving of personal or real object. ii. Personal obligation refers to an obligation which consists of doing a particular prestation but not delivery of an object. b. Negative obligation refers to an obligation which consists of abstaining from some act. 4. Distinctions between Civil Obligation and Natural Obligation I. II.

Civil obligations derive their binding force from positive law or substantive law, while natural obligations derive their binding effect from equity and natural justice. Civil obligations can be enforced by court action or the coercive power of public authority, while the fulfilment of natural obligations cannot be compelled by court action but depends exclusively upon the good conscience of the debtor. However, voluntarily fulfilment of natural obligation by the debtor will preclude him from asking for reimbursement from the creditor of the amount he has voluntarily paid.

5. Sources of civil obligation demandable in a court of law a. Law refers to the principles and regulations established in a community by some authority and applicable to its people, whether in the form of legislation or of custom and policies recognized and enforced by judicial decision. i. Only obligations expressly determined in the Civil Code or in special laws are demandable. ii. The obligations derived from law are never presumed. iii. The law cannot exist as a source of obligations, unless the acts to which its principles may be applied exist. iv. The obligations and correlative rights arising from law shall be governed by the law by which they are created. b. Contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

i. Obligations arising from contracts have the force of law between contracting parties. ii. Obligations arising from contracts should be complied with in good faith. Page 1 of 23

c. Quasi-contract is a juridical relation which arises from certain lawful, voluntary and unilateral acts, to the end that no one may be unjustly enriched or benefited at the expense of another. i. Two Types of Quasi-Contracts 1. Negotiorum Gestio refers to the voluntary management of the property or affairs of another without the knowledge or consent of the latter. i. Nature of Liability of Officious Managers in Negotiorum Gestio – The nature of their liability is generally solidary unless the officious management was done under imminent danger which makes their obligation merely joint. 2. Solutio Indebiti refers to the juridical relation which is created when something is received when there is no right to demand it and it was unduly delivered through mistake. i. Nature of Liability of Payees in Solutio Indebiti – The nature of their liability is solidary. ii. Examples of Quasi-Contract 1. Negotiorum Gestio a. A person voluntary takes charge of the agency or management of business or property of another without authority or consent of the latter. b. A stranger gives support to a child of another person without the knowledge of the person obliged to give support. c. A person saves the property of another person during fire, flood, storm or other calamity without the knowledge of the owner. 2. Solution Indebiti a. A person receives something when there is no right to demand it or it was unduly delivered through mistake.

d. Quasi-delict or culpa aquiliana or torts refers to a source of an obligation wherein a person by act or omission causes damage to another, there being fault or negligence. i. Nature of Liability joint tortfeasors or two or more persons liable for quasidelict - The nature of their liability is solidary. Requisites of Civil Action based on Tort or Quasi-Delict or Culpa-Aquiliana i. There is no pre-existing relation between the offender and offended parties. (Exceptional cases allow filing of civil action based on quasi-delict despite the presence of contractual relations if the act that violated the contract constitutes a tortuous act on itself.) ii. There exists a wrongful act or omission imputable o the defendant by reason of his fault or negligence. iii. There exists a damage or injury which must be proved by the person claiming recovery. iv. There must be a direct causal connection or a relation of cause and effect between the fault or negligence and the damage or injury, or that the fault or negligence be the cause of the damage or injury. e. Crime or delict refers to any act or omission which is punishable by law. i. Nature of Liability of Criminals – The nature of their liability is solidary. i. Persons who are exempted from criminal liability but still civilly liable for their crime committed 1. An imbecile or insane person. 2. A person under 18 of age. 3. Any person who acts under the compulsion of an irresistible force. 4. Any person who acts under the impulse of an uncontrollable fear of an equal or greater injury. ii. Persons who are exempt from criminal liability and civil liability 1. Any person who acts in self-defense. 2. Any person who acts in the performance of his duties or obligations. 3. Any person suffering from battered woman syndrome.

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iii. Components of Civil Liability arising from Crime 1. Restitution refers to restoration of the thing itself even though it be found in the possession of a third person who has acquired it by lawful means. 2. Reparation of the damage caused shall be determined by the Court taking into consideration of the price of the thing and its sentimental value. 3. Indemnification for consequential damages shall include not only those caused the injured party but also those suffered by his family or by a third person by reason of the crime. 6. Distinctions between quasi-delict and crime a. The right violated by a quasi-delict is a private right while the right violated by a crime is a public right. b. In quasi-delict the name of the case is Private-Plaintiff vs. Respondent or Defendant while in crime the name of the case is People of the Philippines vs. Accused. c. Every quasi-delict gives rise to liability for damages to the injured party but there are crimes from which no civil liability arises. d. Quasi-delict can be compromised but criminal liability for imprisonment and fines can never be compromised except in case of criminal negligence. e. In quasi-delict, criminal intent is not necessary, while in crime, criminal intent is necessary except in (1) criminal negligence and (2) mala prohibita or crimes where good faith is not a defense where criminal intent is not required. f. Claims arising from quasi delict must be proven by preponderance of evidence while conviction for crime must be proven by proof beyond reasonable doubt. 7. Kinds of Thing or Object in Obligation to Deliver a Thing a. A generic or indeterminate thing is only indicated by its kind, without being designated and distinguished from others of the same kind. (Note: Generic thing never perishes.) b. A determinate or specific thing or delimited generic thing is one that is individualized and can be identified or distinguished from others of its kind. i. Note: Loss of thing due to fortuitous event as a mode of extinguishing an obligation is applicable only to obligation to deliver a determinate thing or specific thing or delimited generic thing but not to obligation to deliver a generic thing or indeterminate thing because generic thing never perishes. 8. Incidental or accessory obligations in an obligation to deliver a determinate thing or specific thing or delimited generic thing a. Obligation to preserve the determinate thing or specific thing or delimited generic with due care i. Degree of diligence to be exercised by the obligor or debtor in the preservation of determinate thing or specific thing or delimited generic thing 1. Diligence required by law a. Contract of common carrier – Extraordinary diligence on the part of common carrier b. Necessary deposit (Things brought in hotel or motel) – Extraordinary diligence on the part of hotel or motel or inn keeper c. Contract of bank deposits – Extraordinary diligence on the part of the bank 2. Diligence stipulated in the contract a. The stipulation must be valid. Waiver of future fraud or future gross negligence is null and void. 3. Ordinary diligence or diligence of a good father of a family or diligence of a reasonably prudent person.

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b. Obligation to deliver the fruits of the determinate thing if the fruits occur after the obligation to deliver the determinate thing arises. i. Kinds of fruits under the Civil Code 1. Natural fruits are the spontaneous products of the soil, and the young and other products of animals. 2. Industrial fruits are those produced by lands of any kind through cultivation or labor. 3. Civil fruits are fruits as a result of civilization or fruit arising out of a juridical relation or contracts such as are the rents of buildings, the price of leases of lands and other property and the amount of perpetual or life annuities or other similar income. c. Obligation to deliver the accessions and accessories of the determinate thing. i. Accessories refer to those which destined for the embellishment, use or their preservation of another thing or more importance, have for their object the completion of the latter for which they are indispensable or convenient. ii. Accessions include everything which is produced by a thing, or which is incorporated or attached thereto, either naturally or artificially. 9. Types of Rights of Creditor over the determinate thing and its fruits (Moment the right is obtained) a. A personal right is the power belonging to one person to demand of another, as a definite passive subject, the fulfillment of a prestation to give, to do or not to do. It refers to a right that can be exercised only against a specific person thereby prohibiting an action to recover the ownership or possession of a specific thing if already with a third person but only allows action for damages against a specific person. Personal right over a determinate thing is acquired from the moment provided by the Civil Code or Special Law. b. A real right is the power belonging to a person over a specific thing, without a passive subject individually determined, against whom such right may be personally exercised. It refers to a right that can be exercised against the whole world thereby allowing an action to recover the ownership or possession of a specific thing regardless of the possessor of such thing. Real right over a determinate thing is acquired from the moment of its actual or constructive delivery. 10. General remedies available to creditor when the debtor fails to comply with his obligation a. Action for specific performance with damages b. Action to rescind the obligation with damages c. Action for damages 11. Remedies of the creditor in the case the debtor fails to comply with his obligation to deliver a determinate thing or specific thing or delimited generic thing a. Action for specific performance in addition to damages under Article 1170 b. Action for damages if action for specific performance becomes legally impossible 12. Alternative Remedies of the creditor in the case the debtor fails to comply with his obligation to deliver an indeterminate or generic thing a. Action for specific performance with damages b. He may ask the obligation to be complied with by a third person at the expense of the debtor with damages. 13. Remedy of the creditor if the debtor fails to do the prestation in obligation to do a. The creditor or third person may do it in a proper manner at the expense of the debtor. 14. In an obligation to do whereby only the debtor can do the thing, remedy of the creditor if the debtor fails to do the prestation a. Action for indemnification for damages

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15. In case a public official or officer of a private corporation refuses to perform his ministerial duty, remedy of the injured person a. Special civil action of mandamus 16. In an obligation to do, remedy of the creditor in case the debtor did it in contravention of the tenor of the obligation or did it poorly a. The creditor or third person may do it in a proper manner or it may be decreed that what had been poorly done be undone at the expense of the debtor. 17. In an obligation consisting in not doing, remedy of the creditor in case the debtor does what has been forbidden him a. It shall be undone at the expense of debtor with indemnification for damages. 18. Definition of Delay – Default – Mora refers to the non-fulfilment of the obligation with respect to time. 19. Requisites in order that the debtor may be in default or for debtor’s delay or mora to exist a. The obligation must be demandable and already liquidated. b. The creditor demands the performance either judicially or extrajudicially. c. The debtor delays performance of the obligation despite the demand from the creditor. 20. As a general rule, judicial or extrajudicial demand is necessary for delay to exist. However, the following are the exceptional instances when demand by the creditor shall not be necessary in order that delay may exist a. When the obligation expressly so declares that demand is excused or waived. b. When the law expressly so declares that demand is excused or waived. c. When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract. d. When demand would be useless, as when the obligor has rendered it beyond his power to perform. 21. Moment of delay in reciprocal obligation a. Delay arises from the moment one of the parties fulfills his obligation. 22. Types of Delay or Default (Mora) a. Mora solvendi – Debtor’s delay i. Effects of delay on the part of the debtor 1. The debtor becomes liable for damages for the delay or default or mora. 2. When it has for its object a determinate thing, the delay or default or mora places the risk of loss of the deteminate thing on the debtor. b. Mora accipiendi – Creditor’s delay i. Effects of the delay on the part of the creditor 1. The creditor becomes liable for damages. 2. The debtor may relieve himself of the obligation by the consignation of the thing. 3. The creditor bears the risk of the loss of the determinate thing. 4. The responsibility of the debtor for the loss of the deteminate thing is reduced and limited to fraud and gross negligence. 5. All expenses for the preservation of the thing after the delay or default or mora shall be chargeable to the creditor. c. Compensatio morae – Delay of both parties i. Effect of compensatio morae 1. The delays of both parties are compensated or offsetted.

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23. Grounds for damages in the performance of obligation under Article 1170 or Grounds for breach of contract a. Fraud – Dolo refers to the deliberate and intentional evasion of the normal fulfilment of obligations. b. Negligence - Fault – Culpa is the failure to observe for the protection of the interests of another person, that degree of care, precaution and vigilance which the circumstances justly demand, whereby such person suffers injury. c. Delay – Default – Mora refers to the non-fulfilment of the obligation with respect to time. d. Contravention of the tenor of obligation refers to illicit act which impairs the strict and faithful fulfilment of the obligation or every kind of defective performance. 24. Types of civil damages that may be awarded by Court (MENTAL) I. Mutually exclusive damages a. Liquidated damages are damages agreed upon by the parties to a contract, to be paid in case of breach thereof. It refers to the type of damages that is not assessed by the court but merely applied based on the contractual stipulation of the parties. It refers to the penalty in an obligation with a penal clause. b. Actual damages or compensatory damages are those pecuniary losses suffered and duly proved by the plaintiff. (Legal interest of 6% per annum starting July 1, 2013 and 12% before July 1, 2013) c. Temperate damages or moderate damages are more than nominal but less than compensatory damages. They may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be provided with certainty d. Nominal damages are damages adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. II.

Additional damages to any of the mutually exclusive damages a. Moral damages are damages awarded by reason of physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury b. Exemplary damages or corrective damages are damages imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages.

25. Waiver of fraud a. Future Fraud (Waiver of an action for future fraud is void.) b. Past fraud (Waiver of an action for past fraud may be considered valid.) 26. Degree of Diligence to be observed by Contracting Parties in the Performance of Obligation i. Degree of diligence to be exercised by the obligor or debtor in the preservation of determinate thing or specific thing or delimited generic thing 1. Diligence required by law a. Contract of common carrier – Extraordinary diligence on the part of common carrier b. Necessary deposit (Things brought in hotel or motel) – Extraordinary diligence on the part of hotel or motel or inn keeper c. Contract of bank deposits – Extraordinary diligence on the part of the bank 2. Diligence stipulated in the contract a. The stipulation must be valid. Waiver of future fraud or future gross negligence is null and void. 3. Ordinary diligence or diligence of a good father of a family or diligence of a reasonably prudent person.

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27. Principles on issuance of receipt a. The receipt of the principal by the creditor, without reservation with respect to the interest, shall give rise to rebuttable presumption that said interest has been paid. b. The receipt of a later installment of a debt without reservation as to prior installments, shall raise rebuttable presumption that such prior installments have been paid. 28. In order to satisfy their claims against the debtor, the unpaid creditor has the following successive rights in order of priority after prevailing in the civil action for exact fulfillment a. To levy by attachment and execution upon all the property of the debtor including...